July 2016 The self-study lesson on this central service topic was developed by STERIS. The lessons are administered by KSR Publishing Inc.

Earn CEUs The series can assist readers in maintaining their CS certifi cation. After careful study of the lesson, complete the examination at the end of this sec- tion. Mail the complete examination and scoring fee to Healthcare Purchasing News for grading. We will notify you if you have a passing score of 70 percent or higher, and you will receive a certifi cate of completion within 30 days. Previous lessons are available on the Internet at www.

Certifi cation The CBSPD (Certification Board for Sterile Processing and Distribution) has pre-approved this in-service for one (1) contact hour for a period of fi ve (5) years from the date of original publication. Successful

completion of the lesson and post test must be documented by facility management and those records maintained by the individual until re- certifi cation is required. DO NOT SEND LESSON OR TEST TO CBSPD. For additional information regarding certifi cation contact CBSPD - 148 Main Street, Suite C-1, Lebanon, NJ 08833 • www. IAHCSMM (International Association of Health- care Central Service Materiel Management)

has pre-approved this in-service for 1.0 Continu- ing Education Credits for a period of three years, until June 7, 2019. The approval number for this lesson is HPN 160706. For more information, direct any questions to

Healthcare Purchasing News (941) 927-9345, ext. 202.


1. Explain the concept of total cost of ownership and how it relates to medical devices in the sterile processing department.

2. Discuss direct and indirect costs of TCO for different types of sterilization and disinfection equipment.

3. Discuss recurring costs and other factors that impact TCO for reprocessing departments.

Sponsored by:

END-OF-LIFE COST (residual value, salvage value)


Sponsored by TCO in the SPD

Forethought can lead to more economical equipment ownership and operation by Melissa Gonsalves and Sarah Lazzara

don’t always consider what it’s going to cost to buy insurance for that make and model, how long the car is expected to operate reli- ably, how much the maintenance, parts and service are going to cost as it ages, how much gas, oil and other operating fl uids are going to cost for its daily operation, and how much depreciation we can claim over time. These additional factors are part of the total cost of ownership or TCO, which is defi ned in Wiki- pedia as “a fi nancial estimate intended to help buyers and owners determine the direct and indirect costs of a product or system.” In healthcare systems, TCO comes into


play for many types of major purchases. In the category of medical devices, TCO is defi ned as a cost-benefi t analysis used to compare medical devices before purchase. Healthcare purchasing decision-makers assess the direct costs, indirect costs and benefi ts associated with a particular medical device over its useful life expectancy, and develop a value that will refl ect the full short and long-term cost of a purchase. What does TCO mean in today’s healthcare environment, particularly when a major

Cost Terms and Defi nitions DIRECT COST


hen buying a car, we are often motivated to purchase by its looks and its fi nal negotiated price. We

capital expenditure is being considered for a sterile processing department? TCO analysis should involve looking beyond the price of the unit, which might or might not include additional immediate and long-term costs to the buyer.

Let’s investigate sterile processing and disinfection systems to understand what the hidden costs could be and how they should infl uence the overall purchasing practices of a department.

A TCO primer for disinfection and sterilization equipment A long-term asset is one that is expected to be used for more than one year. In the SPD, most of the sterile processing equipment has a useful expected life of multiple years, or even decades, depending on the equipment and its design. When considering the total cost of ownership for any capital asset*, it’s important to consider direct, indirect, recur- ring, energy, depreciation, and end-of-life costs in addition to the capital acquisition price. TCO can also be affected by the type of process the equipment runs, since specifi c cost factors may be necessary for one sys- tem that are not needed for another. Let’s compare the cost factors for some typical

An expense that can be traced directly to a specifi c cost object such as a department, process or product.

An expense incurred in joint usage that is diffi cult to assign or identify with a specifi c department, process or product.

RECURRING COST A regular cost incurred repeatedly, or for each item produced or service performed.


Monetary and non-monetary (e.g., environmental impact) associated with the production, transmission and consumption of energy.

The gradual conversion of the cost of a tangible capital asset into an opera- tional expense over the asset’s useful life. The purpose of depreciation is to: • refl ect reduction in its book value because of obsolescence or wear and tear; • spread a large expenditure proportionately over a fi xed period to match the benefi t received from it; and

• reduce taxable income by charging depreciation against the organization’s total income.

The estimated residual or salvage value at the end of a product’s useful life. This may include disposal costs (cost of selling, incinerating, donating, dumping).

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